Guide to Legal US Online Betting

In May 2018, the Supreme Court lifted the 1992 Federal ban on sports betting by declaring the existing law unconstitutional. The law was called the Professional and Amateur Sports Protection Act (PASPA) or Bradley Act of 1992. So, the initial question of, “Is it legal to bet on sports in the US?” has been answered. The answer is “Yes” or “Kind of” and in reality it depends entirely on the state. Without an overarching federal law, the states must regulate gambling and it gets a big complicated. To simplify, we’ve broken down betting into categories:

The Shifting Online Gaming Landscape

The recent Supreme Court decision on sports betting in Murphy v. National Collegiate Athletic Association has further upended the already shifting landscape for wagering. In the wake of the decision, states have been rushing to put into place long-held plans to offer sports gambling, pushing forward plans that were, in some instances, already in the making when the decision was issued. In addition, the online casino space has been slowly gaining steam, regenerating itself after previous federal efforts to curtail the space.

Online Casinos

Legal online gambling was authorized in New Jersey in February 2013 with the passage of legislation that allowed for online casinos, provided that they had a partnership with a physical Atlantic City casino. Prior to the bill’s enactment, Governor Chris Christie had vetoed the bill, but relented after the it was agreed that the state receive a larger slice of the gambling pie. In November of that year, 13 online casinos opened, and after ironing out various software and connectivity issues, these casinos began to attract gambling volume. The online casino industry in New Jersey has been experiencing increased success recently. Online casino revenue for July 2018 rose above $24 million, a 29 percent increase year-over-year. The industry has experienced steady gains since inception, helping to revitalize New Jersey’s previously moribund gaming industry. As New Jersey continues to diversify its offerings, its revenues are likely to grow.

Pennsylvania is a recent entrant into the online casino business. Pennsylvania became the fourth state to legalize online casinos when its passed legislation in 2017, which followed five years of various efforts to push the bill to passage. The bill was first proposed back in 2013, but the legislation spent an inordinate amount of time stuck in committee while the issue was further studied. Various problems continued to delay efforts to pass the bill, including disputes over the local tax share and the treatment of video game terminals. Finally, after the bill passed, the state began the application process for online casinos to receive licenses, which would allow for games to be offered in partnership with local casinos. Nine casinos with operations in Pennsylvania applied for licenses to offer online table games, slot machines and poker. The first three were approved in August 2018, with the rest of the applications to be considered the next time the board meets in September. As a result, online casinos in Pennsylvania are soon to become a reality.

Delaware Online Casinos

Delaware has long sought to become a player in the gambling industry. Delaware was one of the first states outside of Nevada and New Jersey to open physical casinos, establishing a profitable location at Delaware Park. Delaware was also an early mover in the online casino space, and in 2012 it passed legislation that allowed established casino to offer online games to state residents. Almost immediately thereafter, the state’s three casinos began to offer online gambling. Online gambling in Delaware consists of video lottery, slot machines and table games. The bulk of the revenue originates from video lottery games. Revenues from online casinos have not quite lived up to expectations. After an upswing in revenues in 2016, profits fell by double digits the next year.

Online Sports Betting

Nevada has been a pioneer in online sports betting, and for many years it was the only state where one could legally bet on sports pursuant to the federal legal framework for sports betting and the protections that it enjoyed. Its casinos rolled out mobile sports betting apps back in 2011 and total sports betting handle skyrocketed thereafter. Initially, online sports betting was disfavored and opposed by the casinos, who believed that mobile sports betting would cannibalize revenues from the physical casinos. However, gradually the casinos came around to favor online sports betting and their fears have not been realized. Total revenues between the casinos and the online sports betting apps has risen over 60 percent since the casinos began to introduce online sports betting.

In June 2018, New Jersey enacted legislation to legalize online sports betting with a July start date for wagering. The opening coincided with the start of the World Cup and the first bet placed was by the state’s governor, who wagered for Germany to win the World Cup. Draftkings Sportsbook became the first company to offer online sports betting in the state, in partnership with Resorts Casino. According to the new law, each casino has the ability to partner with up to three online brands. The opening of online sports betting in the state was intended to boost the state’s existing casinos and racetracks. In addition, the horse racing track Monmouth intends to enter the sports wagering business as well as the Meadowlands race track. Draftkings competitor, Fanduel, also intends to partner with the Meadowlands to enter the online sports betting business in New Jersey.

Online Poker

New Jersey Online Poker

In 2013, New Jersey legalized online poker. Although five companies initially entered the market, several soon exited or merged. Recently, New Jersey entered into an agreement with Nevada and Delaware to establish an online poker pool, where gamblers can compete against other gamblers located in these states. Prior to that, New Jersey was attempting to establish an online poker venue on its own, which dampened volume. Online poker, however, lags behind overall online casino revenue in New Jersey. Still, the new tripartite partnership has stemmed the decline in online poker revenues in the state.

Nevada Online Poker

Nevada legalized online poker after the Department of Justice issued a legal opinion that paved the way by limiting the Wire Act to only sports betting. WSOP.com is currently the only legal online poker forum in Nevada. No other vendors are licensed to participate in the state, as Ultimate Poker withdrew from the market shortly after opening. The online poker industry is subject to regulation by the Nevada Gaming Commission. The site offers a wide variety of poker games. The recent alliance with New Jersey and Delaware has served to increase WSOP’s revenues. 2018 has seen a large increase in entrants to WSOP’s events.

Pennsylvania Online Poker

Pennsylvania recently legalized online poker, as the bill permitting it was signed into law this past July. Nine of the state’s 13 casinos have applied for licenses to operate online poker. It is anticipated that Pennsylvania’s casino operators will align themselves into three or four networks to pool resources. As of now, Pennsylvania is not a part of the alliance with New Jersey and Nevada. Despite the fact that there have been a multitude of entrants eyeing the marketplace, it is expected that there will be a shakeout in the marketplace after actual operations commence, and several companies will establish a dominant position in the market.

Delaware Online Poker

The third state in the alliance is Delaware, which joined the alliance to increase liquidity. Since Delaware has a small population, it is difficult for Delaware to operate its own pool without joining forces with other states. The addition of New Jersey to the pool has further benefited Delaware. Delaware legalized poker in 2012, in close proximity to Nevada’s legalization. The online poker market in Delaware is still quite small, with average monthly revenues hovering right around $20,000 per month. This is down close to 60 percent from the peak revenues.

The History of U.S. Online Betting

Early internet betting in the United States faced heavy legal scrutiny. Although domiciled offshore, these companies were placed under heavy pressure. Jay Cohen, a founder of one of the first online sportsbooks, World Sports Exchange, returned to the U.S. to face criminal charges and was sentenced to prison time for his activities.

Still, there was just enough legal ambiguity to permit early online betting venues to proliferate and thrive. Early legislative attempts to outright ban online casinos failed to win passage. Further complicating the picture was the fact that fantasy sports, which could arguably be considered gambling, was thriving. Nonetheless, there was a steady stream of indictments of online gaming executives.

In 2006, Congress passed the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA), which targeted the financial transactions that powered online gaming. The law targeted offshore operations and stifled the flow of money via payment and withdrawal processing. The modern day equivalent is Bovada, which many Americans are using on daily basis. Read more on the legality of offshore books like Bovada. We feel it’s highly likely that history repeats itself in a fashion and US state lawmakers try to protect US consumers and take down offshore book competition. The definitions that were part of the statute carved out fantasy sports from the definition of gambling. However, gaming business were prohibited from accepting payments from players in connection with wagers. Several states tried to fill the void by attempting to pass their own legislation legalizing online wagering.

On a day that will forever be remembered by online poker players as Black Friday, top executives of several online poker operators were simultaneously indicted on charges of violating UIGEA. These venues ceased operations and their bank accounts were seized. In the process, poker players lost hundreds of millions of dollars. This ground the online poker industry to a halt before the states mentioned above began to re-create the marketplace.

As mentioned above, the UIGEA had a carve-out for fantasy sports as well as certain games of skill. In 2009, a company called Fanduel commenced operations with the premise that contests requiring players to draft teams on a daily basis was a fantasy game that could be considered a game of skill. As a result, their belief was that it fell into the exemption from UIGEA. Accordingly, daily fantasy sports was born. It was not long before numerous companies entered the marketplace and the industry began to receive regulatory scrutiny. Soon, multiple states began to ban daily fantasy sports within their borders. However, other states expressly legalized the industry, which continues to thrive as the market has consolidated.

Underlying the issue of the legality of sports betting is the Professional and Amateur Sports Protection Act of 1992 (PASPA), which effectively barred sports gambling in the United States. This law was passed pursuant to Congress’ power under the Commerce Clause of the Constitution and was premised on the fact that sports gambling was harmful to the integrity of sports. The law had been under sustained legal attack by the states, who wanted to earn revenue from activity that they believed would occur anyway, notwithstanding its legality.

In 2018, the Supreme Court overturned PASPA as unconstitutional. New Jersey, in a continuation of its longstanding efforts to promote legal sports gambling, challenged PASPA. According to the Court in its decision, Murphy v. National Collegiate Athletic Association, PASPA forced the states to take responsibility for enforcing federal laws. This rendered the statute to be unconstitutional. According to the Court, if Congress does not directly exercise its power to regulate gambling on its own, the states are free to enact their own laws.

Legalization Post-Murphy

States had been preparing to legalize online gambling, anticipating that the decision in Murphy would find PASPA unconstitutional. As a result, several states are poised to take quick action to legalize sports betting.

New York was one of the states to mount a full-scale attack on daily fantasy sports before explicitly legalizing it. Nevertheless, New York has moved towards legalizing sports betting. In 2013, New York had passed a bill to allow sports betting at four New York casinos. Although the New York casinos have largely built infrastructure to handle sports betting, the state legislature finished its session that past June without re-activating the legalization bill. The situation is expected to be addressed next year. Once betting is legalized, Draftkings has a deal with Del Lago Resort to offer online betting in New York.

West Virginia has been one of the quickest movers in the space after New Jersey and Delaware. In March, the West Virginia legislature passed a bill that legalized sports gambling pending the enactment of regulations. These regulations went into effect in June. In August, Hollywood Casino in Charles Town was the first casino to receive a license to offer sports betting. The casino will be able to accept physical and online gets. The goal s for that casino to accept sports bets in time for the upcoming football season, after building the necessary infrastructure and training employees.

Pennsylvania had already passed a bill in 2017 that legalized sports gambling and daily fantasy sports. The sports gambling part of the bill could not become effective as long as PASPA was in place. Now, in the wake of Murphy, Pennsylvania can offer sports wagering. As mentioned above, three casinos in Pennsylvania received licenses to offer online betting. These casinos have not yet petitioned the state regulatory board to accept sports wagers.

In June 2018, Rhode Island legalized sports betting. The legislative approval, however, extends only to sports betting at casinos. There is currently no legal provision that would allow online betting in Rhode Island. Since neighboring states are expected to soon permit online wagering, this could place Rhode Island at a disadvantage and negate any fiscal benefits that the state was counting on receiving.

Sam Shefrin is the founder of Lineups.com, Inc. Before Lineups, he started Daily Fantasy Cafe, Inc. in 2014. Armed with a passion for sports and every Atlanta team, his journey continues with the goal of making Lineups a premier sports analytics destination. He has been quoted on Forbes.com for industry insight and his websites featured on NBATV, Yahoo! Sports, Fantasy Pros, Bleacher Report and SB Nation.